High-Level Economics Commission Report on Carbon Pricing

Convened by the Carbon Pricing Leadership Coalition (CPLC) at Marrakesh in 2016 and supported by the Government of France and the World Bank Group, the Commission brought together 13 leading economists from nine developing and developed countries to identify the range of carbon prices that, together with other supportive policies, would deliver on the Paris climate targets agreed by nearly 200 countries in December 2015.

“The world’s transition to a low-carbon and climate-resilient economy is the story of growth for this century,” said Commission co-chairs Joseph Stiglitz and Nicholas Stern. “We’re already seeing the potential that this transformation represents in terms of more innovation, greater resilience, more livable cities, improved air quality and better health. Our report builds on the growing understanding of the opportunities for carbon pricing, together with other policies, to drive the sustainable growth and poverty reduction which can deliver on the Paris Agreement and the Sustainable Development Goals.”

The report focused on 6 key insights:

Tackling climate change is an urgent and fundamental challenge.

A well-designed carbon price is an indispensable part of a strategy for reducing emissions in an efficient way.

Achieving the Paris objectives will require all countries to implement climate policy packages.

The Commission explored multiple lines of evidence on the level of carbon pricing that would be consistent with achieving the temperature objective of the Paris Agreement, including technological roadmaps, analyses of national mitigation and development pathways, and global integrated assessment models, taking into account the strengths and limitations of these various information sources.

Explicit carbon-pricing instruments can raise revenue efficiently because they help overcome a key market failure: the climate externality.

Carbon pricing by itself may not be sufficient to induce change at the pace and on the scale required for the Paris target to be met, and may need to be complemented by other well-designed policies tackling various market and government failures, as well as other imperfections.

It also found that:

Explicit carbon pricing can be usefully complemented by shadow pricing in public sector activities and internal pricing in firms.

Reducing fossil fuel subsidies is also part of carbon pricing—in effect, these subsidies act like a negative emissions price.